Investor Panel from the LDV Vision Summit in May 2015.
Evan Nisselson, LDV Capital
Evan Nisselson: Thank you for joining our panel on “Trends of Investing in Visual Technologies.” Can you please give us two minutes of what you love, what’s the focus of your fund, and then we’re going to jump into questions and continue chatting? It’s very free flow.
Anu Duggal: Sure. Thanks so much and thanks for having me.
Evan Nisselson: Our pleasure.
Anu Duggal: I am the founding partner of FCubed, Female Founders Fund, which is a seed-stage fund focused on investing in companies founded by women in technology, primarily based in New York. We write seed-stage checks, so anywhere from $75,000 to $150,000. The funds thesis is that when you invest in really great female founders, you can get a great venture backable return.
Andrew Cleland: I’m a managing director for Comcast Ventures. We invest on behalf of Comcast, NBC, and Universal. There’s really two things to understand about our fund. We are a strategic fund but we behave exactly like a traditional VC fund and there’s two things that underpin that. The first is that we get compensated like a traditional VC and that’s only important to relay to you for entrepreneurs to understand that we’re on the same side as the entrepreneur. We’re not trying to invest into the company to advantage Comcast’s interests necessarily. We do well when the entrepreneur does well. We just want our portfolio companies to do as well as possible. The other thing to understand about us is that we decision-make within the partner group. As far as entrepreneurs working with us, we look and feel exactly like a traditional VC. But the plus point is, and what I think is exciting about the platform is, we can bring the assets of Comcast and NBC and Universal to bear on behalf of our portfolio companies. We get privileged access and in certain verticals—advertising is an obvious one, video is an obvious one—which I think is one of the reasons that I’m here. We can add value over and above the check.
Evan Nisselson: A little bit of perspective because I’m not sure if you guys were here yesterday. We have 350 people attending and everything is on video. This Summit doesn’t end when it is over because we will be leveraging many forms of content marketing to share your wisdom from this panel. So just keep that in the back of your mind as well.
Andrew Weissman: He’s warning you, by the way. That was the point of that.
Evan Nisselson: Well, I did it after I gave him the flask. You see how it’s all about marketing, Andy. I’ll let Andy take a break for a second because he’s been talking a little bit. Andrew Cleland, talk a little bit about some of the video companies that you’re in. And what are the biggest challenges of those specifically and what excites you about those opportunities? Obviously Comcast is there, so that’s the key piece, but personally it’s a personal drive to choose those companies.
Andrew Cleland: Yes. I’ll talk about the group a little bit and I’ll talk about one of my companies just to highlight an example. We really think about it in relatively traditional buckets of infrastructure and content and monetization. Infrastructure, it’s obviously core to our DNA. We move bits around the web as an operating company so we have a number of investments in things like IP distribution companies. We have invested into semi-conductor companies, which is quite rare these days for a range of funds. We’ve invested into image capture, little chips that sit behind the cameras in your smartphones for those of us in the room, presumably all of us that have smartphones. We step up the infrastructure lab. If we think about content, we invest into pure play content companies. We’ve invested into Fullscreen and Tastemade, a couple of better known MCNs. We’ve invested into a company called SnagFilms. We’ve invested into companies which are increasing—maybe they didn’t start out as focusing on images as their core USP, but Flipboard, for example, which is becoming increasingly a visual medium.
And then in terms of monetization, we’re in VHX with Andy in Union Square. And the company that perhaps I’ll spend a little bit more time on is a company called SundaySky, which is a company that’s one of my portfolio companies, which is really about personalized video. It breaks apart video streams and it reassembles them in intelligent ways to speak personally to the characteristics of the viewer and the impression at the time. It can be used in a couple of ways. It can be used by enterprises to do things like explain particularly complicated propositions, so insurance companies, finance companies, medical companies that need to explain really quite complicated things to its users, need personalized video that is appropriate to the particular situation of the viewer, and there’s an advertising side as well. If you imagine browsing around through a session on the web, you’re interested in a particular set of products, it’s possible to present video to you later in that session or maybe even later in the week that reflects back some of the interests that you’ve demonstrated in certain products around the web.
Evan Nisselson: Great. Anu, I know we talked, as we were trying to get a mixture of great people on this panel with... A corporate VC, traditional, and early stage [investor]. You have a couple visual-based companies in your portfolio. To what extent are they leveraging images and video and how much do they think that’s a part of their business?
Anu Duggal: Sure. So if I was to look through the portfolio, I would say... Actually, the first investment that we made, which I made personally, is probably the one that I think leverages images the most. That’s a company called Loverly, which is in the wedding space. I think the wedding space traditionally has been quite antiquated. There hasn’t been a lot of disruption. I think when you look at things from a bride’s perspective, it’s really about imagination and it’s about visualizing what you want that day to look like. Obviously that’s definitely translated into very big advertising spends. I think what Kelly, the founder, what her goal and vision with Loverly is, is to really try to create a platform which in some ways has a network. She’s aggregating content across the top wedding blogs and leveraging that to build a community of brides where you have the advertising element of it but then you also have commerce on top of it. I think that that’s a very clear case of a company where images are just so crucial to the customer’s experience that it’s hard to imagine that it didn’t exist before.
Evan Nisselson: One of the slides I referenced yesterday was the teen audience and where they are spending their time. We know the names of those companies—Facebook, Snapchat, Pinterest, and other visual places—which I think wouldn’t exist without images or video, at least not to the state that they’re in. One question I haven’t asked any of the investors—do you hear at the board level or in strategic conversations: Maybe we should start leveraging images and video more?
Andrew Cleland: I’m talking with a seed company at the moment where the idea of the company is really to innovate. You know, 15 years ago, it would have been a magazine and today, it’s trying to figure out exactly the right blend of images, video, and text to be the most compelling proposition it can be. That’s maybe a good example of the kinds of conversations that people are going through. There’s some subtleties to how you implement in terms of auto play, in terms of the way that you use audio, in terms of the stills that you use, in terms of the way that you present images through the body of the text and the way that you present the text relative to these images that can dramatically change the way that people actually choose to consume the media. Video is obviously much more involving. It requires a little bit more of a time and an emotional commitment from the viewer, so you need to tailor the content as well to the particular use case. If it’s things like news, where you’re trying to ingest as much information in as short amount of time as possible and you’re time constrained, video maybe isn’t the most compelling format. If it’s a little bit more discursive or it is content that we think can live for a much longer lifecycle, then it’s much more interesting to use video. I think the other thing I think that’s interesting is, is there’s a hook for video-established brands, whether they’re people brands or brand brands or thought leader authorities. Really interesting complement to video to pull people into that experience because you need a little bit of a hook to pull people into committing to longer time. There’s 90 second views, for example.
Anu Duggal: I would say going back to your earlier comment about Bark- Box—even though when I look across the portfolio, there are definitely quite a few companies that don’t involve images or video as a core part of their business, one thing that I think all of them have really tried to do is figure out what is the distribution or marketing tool that their customer base is most attracted to. In the early days, you’ll test out Pinterest, you’ll test out a bunch of different channels, and I think figuring out what is the type of content... Is it video content, is it images on Instagram or on Pinterest? I think that, to me, is similar to BarkBox. It’s a way of thinking through how to add that layer and make it relevant. And what does your customer base most associate with your brand?
Evan Nisselson: That makes a lot of sense, but on a timing basis, it seems like that’s a recent thing. What initiated this trend? Was it Instagram’s sale or was it Pinterest? Does anybody recall a signal that everybody says, “Well, we have to get involved. What’s our plan for this?” or “It’s really, actually happening.”?
Andrew Weissman: I actually think it’s a network effect.You want to go where people are.
Evan Nisselson: But when did it get big enough? That’s the hard question, like you said earlier. You don’t know a network until it is.
Andrew Weissman: Yeah. It’s recent, right? The last couple years.
Evan Nisselson: Initially, the reference of Bark Box was great because...I didn’t get to say it earlier where, as you know, I’m very good friends with him and I helped him in the early days and I wanted to invest but I’m so thesis focused. I asked, “I bet you’re going to leverage images and all types of visual content in a BarkBox community?” Matt said, “Evan, I can’t. You’re probably right but we don’t have the plans right now, I can’t commit to it.” He’s focused, but I knew it. “Can’t we just do it?” “You can, Evan, but I can’t say now that we’re going to do that.” And that was the right answer from him. Maybe I should have broken my rule.
Andrew Weissman: There was no way to know that there would be dogs who have Instagram accounts that have a million followers, right?
Evan Nisselson: Agree.
Andrew Weissman: There’s no way you can predict it.
Evan Nisselson: It was just going to happen.
Andrew Weissman: Yeah.
Evan Nisselson: It’s easy to say now but that’s what I said... That was the exact conversation.
Andrew Weissman: It goes back to your question. All these things are blending, right?
Evan Nisselson: Right.
Andrew Weissman: You as an investor can break your rules and you could come up with a rational thesis because these things are blending so much. There are a couple of companies that I have right now that their most effective marketing channel by far is YouTube. You know how they do it? They find someone on YouTube who makes videos that is somewhat related to what they do and they send them an email and say, “Hey, will you review our product? If you review it, we don’t care what you say. Put a link in the comments.” That’s it. I actually shouldn’t even tell this secret because they’re doing so well, right?
Evan Nisselson: That’s interesting. That’s a perfect example of things that are happening and that’s why I wanted to have us discuss this. What are other companies doing? What should companies do? What will get that to the next spike? Do you have any other examples, either of you?
Anu Duggal: Well, one company that we haven’t yet announced, which I think is really interesting, is focused on YouTube and the how-to space. YouTube has just kind of skyrocketed in terms of styling and fashion. This company is basically creating a mobile video network with Tier 1 and Tier 2 influencers who are creating very short, 30-second to 1-minute videos on how to put on mascara, various styling and fashion tips. It’s interesting because, again, you have the network effect. You don’t necessarily need to start with the most well-known influencers, but they bring their own audience. It’s not a traditional advertising model in that they’ve already signed up with brands... How do you cuff a sleeve properly with Jenna Lyons from J. Crew? Talking to J. Crew, video is actually their, by far, their most effective advertising tool. They just don’t have enough platforms to use video as a tool. To me, that company hasn’t launched yet and I can’t name it, but it’s a really interesting way of kind of leveraging YouTube’s existence but also acknowledging that 60% of YouTube videos are still viewed on web and not on mobile. That’s an interesting company, which I think is kind of taking advantage of it.
Evan Nisselson: That’s great.
Andrew Cleland: I was just going to make a slightly different point. I think we’re seeing so much activity and will continue to see activity. I think it is a single inflection point. I don’t think it’ll be a pendulum swing back again because it’s not that long since mobile networks appeared. It’s the interplay between mobile and the load on the networks that compound video and images. It’s not that long since mobile networks have been able to support this kind of content. It needs a year or 18 months for entrepreneurs to figure out what to do with this new capability. Things like auto play in the Facebook stream, things like Instagram, things like Snapchat—it just takes a little bit of time for the ecosystem to figure out. Even Gmail’s innovations around inbox and threading photos into the stream, it’s taken some time and I now think all of that stuff is coming to market. It’s clear that the future of web is going to be far more visual.
Evan Nisselson: You’re giving me a flash back to a 10k file taking 10 minutes to download on a 9600 baud modem.
Andrew Weissman: They don’t even know what you’re talking about.
Evan Nisselson: I know they don’t. They’re young. Anybody have questions? We’ve got about 12 minutes left so feel free to raise your hand if you’ve got questions. What questions do you guys have for each other? I have one while you guys start thinking about questions. The most important thing to me, and I think all of us, is it’s all about the people. It’s all about the entrepreneurs. It’s all about you guys [pointing to the audience] and us. What do you love and hate about your job?
Anu Duggal: I can start.I’ll start with what I love. I would say the part that I love about my job is obviously meeting entrepreneurs and seeing what, over time, new business models are emerging, new industries that are being disrupted. As an investor, I think you have the advantage, unlike an operator where you’re very singly focused, of getting to see a little bit of everything. I think what I really dislike about my job is that you spend a significant portion of time saying “no.” And having been an entrepreneur before, in some ways it goes against your makeup, which is to try to help and build things and help people. I would say that’s something that I’m still trying to get better at.
Evan Nisselson: I have similar challenges all of the time.
Andrew Cleland: I’m terrified of being bored in my job. I have been in jobs where I have been bored and it’s a horrible place to be. This job is fascinating. You’re always intellectually challenged. You’re very rarely the smartest person in the room. It’s an incredible privilege to have a job where people are explaining their deepest passions to you and providing you with insight all day. There’s incredible intellectual variety. That’s the highlight of my job. There really aren’t many lowlights. I do love what I do. I think if I was to point toward anything, it’s a slow cycle in terms of seeing the fruits of your work. You only start to see in five or six years’ time really how good you are. It would be nice to have a shorter cycle of feedback, I would say.
Evan Nisselson: We have all been entrepreneurs on this panel so this is a great operator/investor group, which I believe is the ideal mixture. The biggest thing I struggle with as an entrepreneur daily was either you are moving the ball forward quickly, slowly, or not at all, or possibly going backwards. You knew what was happening daily. There were metrics that you really knew. And doing this, I had gotten used to it for 18 years and I love it but it is a whole different game as an investor. You have a perception that you’re more in control as an entrepreneur, and you might be, but we’re never really in control.
Andrew Weissman: Related to that, the thing that I think is pretty interest- ing about venture is that it’s a near perfect system for allocating very risky capital. Your question was “What do you love about it?” One of the things that I love about it is that we are in the business of constructing portfolios that hopefully are diversified in a manner that we define, but we’re not in the business of having to be right all the time. We’re actually probably in the business of having to be right once every five years. That’s a pretty interestingly constructed environment, which I like. The thing I dislike the most is exactly that, which is that you’re going to, if you’re good at it, you’re probably going to be wrong 70, 80, 90% of the time. The relationship between us and our companies is vastly asymmetrical, you know?
Evan Nisselson: Right. That’s why I ask this question. I like talking about the dual perspective. What’s the perspective of the entrepreneur from the investors and what’s the investor’s perspective of the entrepreneurs? What do you like and dislike?
Andrew Weissman: The success of your company. I invested in you and I invested in 23 other companies in constructing a portfolio. The success of your company is kind of irrelevant to me, to my portfolio. The success of your company is actually all you have. I find one way to resolve that is just to be up front about that. Be up front that that’s the relationship.
Evan Nisselson: Which is why I like bringing it up here because it is a real thing. They’re all relevant but it actually is not life or death, I think, is the situation. It’s a percentage game where you’re building a portfolio and every- body working together to try to figure out how to make them all successful as a goal, ideally.
Andrew Weissman: Yeah but...
Evan Nisselson: The numbers are numbers. They’re not going to be, right?
Andrew Weissman: They’re not going to be.
Evan Nisselson: Right. You’re absolutely right. Questions in the audience? Yes, go ahead over there. Stand up.
Audience member: Andrew, I have a question for you.
Evan Nisselson: Andy or Andrew?
Audience member: Andy Weissman. You mentioned earlier about investing in network businesses and the good thing about network businesses is that they are very defensible and you have great barriers to enter it. Fantastic. At the same time, usually it’s winner takes-it-all markets and that really increases the risk. Do you think that is a high risk strategy and how do you mitigate that risk?
Andrew Weissman: Yes, it is a high risk strategy and we’re not in the business of mitigating. We accept that risk because that’s the risk that drives returns that are meaningful to our investors to allow them to invest in a liquid security where they won’t see return for 10 years. That’s the dynamic that we want. I have a question in my mind, and we talk about this in USV, whether things are still winner-take-all or winner-take-most, but that’s separate. That’s a dynamic. Binary outcomes drive the returns that make our investors happy. And if our investors are happy, we are happy. If our investors aren’t, we aren’t. That’s a feature, not a bug, maybe. Now, the more interesting question to me is that that’s not necessarily a mode that is appropriate. That’s not necessarily a mode that every entrepreneur should aspire to. There are lots of flavors of running a business. There are lots of flavors of being an entrepreneur. There are lots of flavors of financing your company and there are lots of flavors of exiting and getting liquid from the investment you make in your company. We are just one flavor, but we’re a flavor that requires outsized return or it doesn’t work.
Audience member: This is for mainly Andrew Cleland.You mentioned that companies are only now utilizing the bandwidth of mobile networks and with the gigabyte networks coming I saw demonstrated from Google Fiber and... They’re just playing 10 videos at the same time, which is not really what people are going to be doing. Have you started to see what people are going to be actually doing with this besides higher resolution or the boring stuff?
Andrew Cleland: There certainly is higher resolution. It may be boring, but 4K is going to stress these networks. I don’t think it’s that well known by the general public how stressed these networks are by the rise of video. It’s really pretty dramatic and the network operators are having to invest large
sums of money to keep pace and to make sure that people get the experiences that they need. 4K is going to be interesting. Augmented reality is going to be interesting. VR is going to be interesting. These are all very bandwidth-intensive applications that are going to stress the network. I’d say even more than that, and just to take our US hats off for a second, think about the infrastructure internationally and the fact that plenty of people in the world can’t access some of the most basic picture-oriented services. That is also a challenge.
Evan Nisselson: Any other questions in the audience? Like I said earlier, if you don’t raise your hand, we don’t know who you are. [Pause] Virtual reality, augmented reality. What do we think about it? Is it really here this time? Do you believe virtual reality is really going to meet the hype within the next two years—for anybody who wants to talk about it—or is it really going to take another 10 to 20 years? Anybody want to answer?
Andrew Cleland: Yeah, I’ll give you my perspective.
Evan Nisselson: What do you think?
Andrew Cleland: Yeah, so I’ll give you my personal point of view.
Evan Nisselson: Right.
Andrew Cleland: My group is quite split around this point.
Evan Nisselson: I think a lot of people are split on their views.
AndrewCleland: Yeah,soourgroupspenttimewithOculus,ourgrouphas spent time with Magic Leap—two of the more interesting companies in this space. It feels magical when you experience these services. My personal point of view is that it’s going to take a long time, longer than people expect. It’s going to be fundamentally world changing, but it’s going to take a long time and I think investing is partly about understanding when to invest. I think these are very important technologies. I think in 30 years’ time, they’re going to change the way our world works in many, many ways.
EvanNisselson: Andrew,Iagree.I’vegottojumpinbecausethedefinition of a long time for you...
Andrew Cleland: Yeah.
Evan Nisselson: ... an entrepreneur. My sister, me, and everybody else in this room is totally different. It’s the same kind of question of what's a lot of money? “A lot of money” is very different to every single person in this room. There’s enough money to eat and there’s playing money. They’re different. What’s a long time to you? It’s going to take a long time to get to the tipping point that we just talked about, about images really being marketing and trending. When does that happen for VR, roughly? Within 10 years, 20 years? I mean like time frame? Are we 5 years, 10 years, 30? When is it going to happen, which then relates to when you’d be interested, obviously? What’s in your gut?
Andrew Cleland: Really, I don’t have an answer for that, but let me give you just a stab in the dark. I think the technology will arrive ahead of scaled usage because I think the content will take time.
Evan Nisselson: Agreed.
Andrew Cleland: I think creating that corpus of content is really interesting. It’s going to take six, seven, eight years before we’re really using these services on a daily, weekly basis.
Evan Nisselson: Six to eight years?
Andrew Cleland: Mm-hmm..
Evan Nisselson: Okay. What do you think?
Andrew Weissman: I have no idea.
Evan Nisselson: Anu, any idea?
Anu Duggal: I have no idea.
Evan Nisselson: Yeah, so I’ll continue the discussion because I asked the question. Basically, I’m trying to figure this out because I’m looking at a lot of these companies. I’m putting on the headsets and I think it’s fascinating. However, I get dizzy sometimes and what are the use cases other than a couple of the obvious ones, which are the leading edge of all technologies, anyway? I think it’s going to be infrequently used in the beginning. I think in terms of images and VR and the content, it’s going to be unbelievably world-changing, but I think it’s going to take much longer. I don’t think a majority of people will use it for 10 to 15 years.
Andrew Weissman: You know what’s an interesting question is that...I think it’s hard. The pace of change, it’s so ridiculous. It really is hard to predict any- thing. One thing though that you can do is I’d look at... We have an incredibly healthy, enriched ecosystem for entrepreneurs to exist as entrepreneurs and it didn’t exist 5 years ago or 10 years ago and it sure as hell didn’t exist when I started in the business. Entrepreneurs are really frickin’ smart. I just watch what they do. That dude is building that camera. I wouldn’t have thought of that camera with like six things and so I’m like, they’ll fill gaps in ways that I think we don’t see because we’re up at a higher level. That, to me, is maybe a little more indicative.
Evan Nisselson: Right. Sure. I think you’re absolutely right. I don’t like putting set times and I’ve been bleeding edge a little too often with my article in 2003 that camera phones will replace point and shoot cameras and other ones. I was right but it took a long time. I feel that I am correct about satellite selfies. Please give one word answers—what is the personality trait that you love and hate in entrepreneurs?
Anu Duggal: Hustle.
Evan Nisselson: Hustle—that is what you love?
Anu Duggal: I love it because I think that you need it as an entrepreneur.You have to be resilient and to keep going with a lot of rejection, but sometimes it can be annoying.
Evan Nisselson: You love and hate the same word?
Anu Duggal: Yeah.
Evan Nisselson: We’ve got a trend going on here. Andy,you started this trend. Andrew?
Andrew Cleland: Transparency and that means intellectual honesty to me.I find that entrepreneurs tend to divide into two camps. One is “here is my business, here are my challenges, let’s figure through this together” and kind of “fake it ‘til you make it.” I prefer working with the former.
Evan Nisselson: Great. Andy, you already did yours.Do you want to go again or are you sticking to it? Good man. You can start on the next one. What is the one-sentence advice to entrepreneurs building a business?
Andrew Weissman: Oh God—one, just one?
Evan Nisselson: One sentence. I just like sound bytes. Does anybody want to go? Andy’s thinking.
Anu Duggal: I can go.
Evan Nisselson: Good, go.
Anu Duggal: My one piece of advice would be to surround yourself, in whatever capacity you can—advisors, mentors, investors hopefully—with people who are knowledgeable about the industry that you’re entering. The majority of entrepreneurs I meet don’t necessarily come from the industry and I think that’s a good thing. If you don’t and you’re willing to disrupt, then try to at least get market knowledge by the community around you.
Evan Nisselson: Great.
Andrew Cleland: Set 3 month, 6 month, 12 month goals. Make sure they’re consistent. You don’t have to stick to them religiously. You can alter them on the field of battle as circumstances change, but quite often you’ll sit down with an entrepreneur and they’ll sketch out what they’re trying to do now and where they think they’ll be in a year and there isn’t the coherency.
Evan Nisselson: Okay, great. Great advice. Andy?
Andrew Weissman: Give a lot of thought to whether when you hear “no,” whether that’s a positive indicator or a negative indicator. Be really honest in thinking about it because it often... In different circumstances, it’s both.
Evan Nisselson: That’s great.I want to riff on that in mine. In my mind,“no” never means “no.” It means “not now.” Until you evolve to either validation from customers, significant others, or parents, in anything in life, “no” never means “no.” It’s just not a “yes” yet. The “yes” could take a long time, but that’s my advice. Round of applause. Thank you very much, fantastic. I’m awed with this panel and we’re moving on. Thank you very much.